Beware the add-ons if you take out an unsecured short-term personal loan from a bank: exorbitant interest rates – in the region of 30 percent – administration charges and life assurance premiums could see your paying back an additional 60 percent-plus on the loan.
The life assurance – which covers the loan in the event of death, disability or retrenchment – into which the banks will steer you is about the most expensive on offer.
The premium on the life assurance may also be added to your loan amount, with the result that you will be charged further interest.
Ordinary life assurance, on average, costs less than a quarter of the life assurance sold by the banks to cover unsecured personal loans.
The life assurance sold by the banks to cover unsecured personal loans is provided by life companies that are owned either by the banks or by companies associated with the banks.
The Financial Services Board (FSB), the National Treasury and the National Credit Regulator are about to launch an investigation into credit life assurance in general, and the investigation will include the banks’ assurance products.
Jonathan Dixon, the FSB’s deputy executive in charge of insurance, says the FSB is concerned about the terms and conditions under which the banks force borrowers to take out high-cost short-term insurance.